TREASURY DEBT SALES SHOWING SLOW SIGNS OF A " LEAK IN THE DAM" WITH WORLD INVESTORS EASING UP ON BUYING-WHY BUY NOW IF YIELDS UP LATER!

Free markets have a funny way of adjusting to all situations. They take into account realities and guess at the future.

In the case of our TREASURY and its necessary sales of TRILLIONS in NOTES and BONDS to finance the future spending and deficits, the potential is clear that these will be sales at a pace never done before.

Think about it this way...if you have funds to invest, do you want a higher interest rate later, or a low interest now?

Answer: higher rate!

Thus in the longer term, everyone knows that the USA has to borrow enormous amounts and will compete for the money in any economic recovery with PRIVATE business which will be offering interest rates that are better.

The interest rates will climb due to the irresponsible spending and this will hurt the economy, businesses of every size and consumers as well.

No matter what is being told to the news media, do not lose sight of the future facts; the government HAS TO borrow a lot of money that will be looking to be invested into the best and highest yield.

Today, Treasuries fell for a second day after the government’s record $39 billion auction of five-year notes drew a higher-than-forecast yield, renewing concern the deluge of U.S. debt being sold will overwhelm investor demand.

The notes drew a yield of 2.689 percent, compared with a forecast of 2.635 percent in a survey of eight of the Federal Reserve’s primary dealers. Indirect bidders, a class of investors that includes foreign central banks bought 36.7 percent of the notes, down from 62.8 percent of the securities at the June sale, the highest since December 2004.

“You’re starting to see customers pull back from the market,” said Thomas L. di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC, a New-York based brokerage for institutional investors. “It’s been a fundamental shift in central bank buying.”

The yield on the benchmark 10-year note rose two basis points to 3.72 percent at 1:16 p.m. in New York. The yield climbed to 3.76 percent on July 27, the highest level since June 22.

The existing five-year note yield rose eight basis points to 2.68 percent, after dropping as low as 2.55 percent.

The sale is the biggest offering of the notes since the Treasury began issuing five-year notes in 1953, according to the Department’s Bureau of the Public Debt. Last month’s $37 billion sale of the securities was the previous record.

Bid-To-Cover

The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered was 1.92, compared with an average of 2.2 at the last 10 auctions. It was the third of four auctions totaling $115 billion that is the largest amount of so-called coupon securities sold in a single week.

At the June 24 auction, the notes drew a yield of 2.7 percent, the highest since October. The so-called bid-to-cover ratio was 2.58 last month, the highest since October 2007. The average indirect bid for the past 10 auctions is 36.8 percent.

The five-year note sale will be followed by a $28 billion offering of seven-year securities tomorrow. The government sold $42 billion of two-year debt yesterday and $6 billion of 20-year Treasury Inflation Protected Securities on July 27.

The U.S. raised $1.02 trillion this year selling Treasury securities to help finance a recovery from the recession, government data show. In its next round of auctions, the U.S. will sell three-, 10- and 30-year securities on three consecutive days beginning Aug. 11. WATCH OUT FOR THOSE YIELDS AS INDICATORS.

Revised Estimate

Goldman Sachs Group Inc. said the U.S. will sell about $2.9 trillion of debt in the two years ending September 2010, cutting its estimate for Treasury auctions by 28 percent, as the economy improves (oh yeah).

President Barack Obama will sell a net $1.9 trillion of debt in the current fiscal year that ends Sept. 30, Goldman said in its report late yesterday. In March it forecast $2.7 trillion. Goldman, also a primary dealer, trimmed its projection for sales the next fiscal year to $1 trillion from $1.35 trillion.

Forecasters say the U.S. federal deficit will be $1.725 trillion for this fiscal year and $1.4 trillion in the following 12 months.

I say no way, it will be way bigger due to all the government mandates, taxes and forced programs all of which will bring in less revenue to the Treasury than forecast.

‘Certainly a Concern’

Two-year notes fell yesterday after the debt sold at a higher-than-forecast yield. Indirect bidders bought 33 percent of the notes, compared with 68.7 percent at the June auction, the most in at least six years.

“The lack of indirect bid was certainly a concern for the front-end,” said Dan Orlando, head of U.S. government bond trading at primary dealer Deutsche Bank Securities Inc. in New York.

The difference in yield, or spread, between two- and 10- year notes fell to as low as 2.53 percentage points, the narrowest in two weeks.

The Fed has bought $222.719 billion in U.S. debt since its purchases began on March 25. The central bank the Fed is scheduled to buy notes due from May 2012 to November 2013.

Treasuries lost 0.5 percent this month, compared with a 0.3 percent advance for German government bonds, according to Merrill Lynch & Co. indexes.

The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.52 trillion of writedowns and credit losses at banks and other institutions and sent the global economy into its first recession since World War II. The government and the Fed have spent, lent or committed more than $12 trillion in a bid to revive the economy and credit markets.

Scary times ahead.